Project #33307 - Finance

Question 1:

You are considering an investment purchase of a portfolios of net lease properties as follows:

 

 

Portfolio A

Portfolio B

Portfolio C

Purchase Price

$  300,000,000.00

$  117,500,000.00

$  63,,000,000.00

NOI Yrs. 1 to 11

$    25,000,000.00

 

$    10,000,000.00

$    5,000,000.00

Terminal Cap Rate

8.00%

8.50%

7.00%

Discount Rate

8.25%

8.50%

7.00%

Reinvestment Rate

4.00%

4.00%

4.00%

Terminal Value

$  312,500,000.00

$  117,647,058.82

$  71,428,571.43



Compute the NPV, IRR and MIRR. Which portfolio do you choose?

 

Question 2:

Based on the following when will more principle than interest be paid.

Loan Amount $100,000

Loan Term – 20 years monthly payments

Loan Interest Rate – 4.5 percent

Suppose the interest rate was 7 percent, when is the cross over?

 

Question 3:

You are ananlying a investment property with NOI of $125,000. If a lender is willing to make a loan at 6 percent, amortized for 25 years (assume annual payment) with an LTV of 70 percent and the equity requirement is 9 percent what is the overall rate (cap rate)? What is the value of the property?

 

 

Question 4:

NPV, IRR, Before and After Tax Cash Flows

You are analyzing a commercial real estate investment that generates a net operating income of $5,000,000 which increases by 3.5 percent per year.  The purchase price is $58 million, the holding period is 10 years, the nominal income tax rate is 28 percent, the recapture tax rate is 25 percent and the long-term capital gain tax rate is 15 percent.  A lender is willing to provide financing for the 10 year holding period with a 25 year amortization period for a fixed rate of 7 percent based on a loan to value ratio of 75 percent (25 percent equity). Calculate the before and after tax IRR and NPV based on a discount rate of 4% above the going in cap rate and a terminal cap rate of 1% over the going in cap rate.  The cost of sale is three percent.  Remember:  going in cap rate-1st years noi/purchase price

 

Question 5

 

How much house can you afford to purchase?

You earn $60,000 per year from all sources (job, investments, etc.). You have saved enough for a 20 percent down payment so you will not have to pay PMI. A conventional lender is willing to provide financing for 30 years at 5.25 percent (monthly payments) with mortgage debt ratio of 28 percent and a total debt ratio of 36 percent. You estimate real estate taxes and insurance to equal two percent. The house you want to purchase costs $225,000. Can you afford to purchase the house? Assuming you are single and your standard deduction is $5,700 what is the tax benefit of this mortgage to you assuming you are in the 15 percent income tax bracket?

 

 

 

Question 6:

Loan Amortization

Based on the following mortgage, at which point do you start paying more principle than interest? And, what is the principle and interest payment during that period.

 Mortgage Amount $350,000

Interest Rate 12 percent

Loan Term 30 Years – Monthly payments

 

 

 

 

Question 7:

If a lender requies a  DCR of 1.20, a maximum LTV of 70 percent amortized over 25 years with an interest rate of 6 percent what is the maximum loan if the NOI is $100,000? What is the maximum property value?

 

 

Question 8:

Which lender offers the lowest effective interest rate?

 

A

B

C

D

Stated Rate

4.25%

4.15%

4.00%

3.75%

Points

0%

1%

2%

4%

Term

360

360

360

360

SHOW ALL WORK! A GUESS AT THE CORRECT ANSWER WILL RESULT IN NO CREDIT.

 

Question 9:

You are an analyst at a REIT and have been asked to make a recommendation if the company should invest in the following three properties.

Apartment Complex

Purchase Price

$19 million

NOI Year 1

$1.9 million

NOI Year 2

$2 million

NOI Year 3

$2.1 million

NOI Year 4

$2.2 million

NOI Year 5

$2 million

Net Reversion

$22 million

 

Shopping Center

Purchase Price

$14 million

NOI Year 1

$1.4 million

NOI Year 2

$1.5 million

NOI Year 3

$1.7 million

NOI Year 4

$1.6 million

NOI Year 5

$1.8 million

Net Reversion

$18million

 

Flex Building

Purchase Price

$10 million

NOI Year 1

$900,000

NOI Year 2

$1.2 million

NOI Year 3

$1.4 million

NOI Year 4

$1.5 million

NOI Year 5

$1.6 million

Net Reversion

$14 million

Calculate the NPV and IRR on each of these properties individually and collectively assuming a discount rate of 15 percent. Which property/properties do you recommend purchasing?  SHOW ALL WORK!

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Due By (Pacific Time) 06/16/2014 02:00 pm
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